Refinancing a mortgage can be a great tool to help resolve high monthly mortgage payments, but it does come with some additional considerations. For one, it isn’t traditionally the best tool if you are facing foreclosure and need to quickly resolve your mortgage debts. Before you sign that refinancing application, ask yourself the following questions.
How Much Will I Save?
Since the goal of refinancing your mortgage is to lower your monthly payment you need to take a close look at the interest rate associated with the new loan. Interest rates have been at historic lows for quite a while now, which means that getting a good deal is still possible. However, not everyone will qualify for such low rates and may only be able to shave off a fraction of an interest rate point, saving you only a few dollars a month.
How Much Will It Cost Me?
What many people fail to consider about refinancing a mortgage is the additional costs associated with the process. When you refinance a mortgage you are taking out a new mortgage loan to replace your old loan. This means that you will be subject to appraisal costs and closing fees, which we know can run thousands of dollars. Even worse is that some lenders may not allow you to roll these fees into the loan and will require the payment at the time of closing.
Will There Be Any Negative Outcomes?
Even after you determine that refinancing will save you enough money in the long run to be worth the hassle and you have enough money to cover the additional costs of the loan, there are still a few things to consider. One aspect of refinancing that gets easily overlooked is the loan term. Refinancing a mortgage into a new, lower interest rate loan for 30 years restarts the clock on that loan. This means that if you had 10 years paid towards your existing 30 year mortgage, you will be losing that 10 year advantage window.